There is a saying in economics that nothing fixes high prices like high prices. Today, governments around the world will be pinning hopes on that maxim more than ever. Not since record levels during the 2008 financial crisis have oil markets been as chaotic as they are today. Brent, the benchmark for two thirds of the world's oil, is up by almost 100 per cent on levels this time last year. Many believe summer prices could break records. Bjornar Tonhaugen, head of oil markets at Rystad Energy, says they could hit $240 per barrel by then. Russia's Deputy Prime Minister Alexander Novak said they could even go beyond $300 if the EU follows the US and the UK in banning crude, gas and coal imports from Russia.
These warnings should be taken very seriously. Uncontrolled surges are destabilising at the best of times. In the aftermath of Covid-19, they are particularly threatening. That the root cause is something as unpredictable as war with no end in sight is a further cause for concern.
Amid heightened anxieties, the UAE is using its clout in oil markets to call for calm. Prices have now fallen slightly after the country said it will encourage fellow Opec+ members to increase production at a faster pace than its current monthly target. “We favour production increases and will be encouraging Opec+ to consider higher production levels,” Yousef Al Otaiba, the UAE's ambassador to the US, said.
The aim is to promote stability above all else. As potent as the danger of very low prices, which make investment in newer, cleaner energy technologies harder, record highs could cause a recession. Unfortunately, technological, economic and diplomatic limitations mean there is no such thing as sudden production increases at the push of the button. But if Opec+ can foster a return to the middle ground as soon as possible by using a collaborative approach, oil prices could become an early, crucial certainty in an economy that is currently at the mercy of many unknowns. It is in this mission that the value of the group becomes so obvious.
The UAE stressed that any conversation about production increases will involve all members of the organisation before anyone else. In a tweet, Suhail Al Mazrouei, UAE Minister of Energy and Infrastructure, said: "The UAE believes in the value OPEC+ brings to the oil market. The UAE is committed to the OPEC+ agreement and its existing monthly production adjustment mechanism." In a sign of its ongoing commitment to stability even before the Ukraine crisis, the group had already announced it was increasing production to 400,000 barrels per day in April in order to temper a previously expected rise in prices.
More widely, the alliance is also a resilient channel for dialogue with Russia as so many others are closing. It is a country's sovereign right to close embassies and limit relations, but, no matter how fraught the situation, diplomatic conversations during times of war must never be completely severed. Built on strong, historic and mutually beneficial ties, Opec+ can offer important lines of communication during these dangerous times.
Using and listening to the expertise of the organisation‘s member states is also the best way the world can stay on track in the shift to greener energy. Appreciating the ongoing role of carbon products, as well as the continued need for investment to build flexibility and resilience in the sector, does not distract from climate goals, rather protects them.
Perhaps high prices are unsustainable in the medium term. But the global economy, already fragile, needs more than trusting in unknown market dynamics and maxims. As a committed member of Opec+, the UAE is making sure cool heads and co-operation can build confidence. Overall, the renewed importance of what the group is doing highlights the importance of governments maintaining agile, nuanced hydrocarbon policies. Without them, crises such as we see today will only be made worse by inevitable, tense scrambles in energy markets.